SCOTUS Weighs Three Block Buster Business Law Cases

This article has been updated.

By John Elwood and Eric A. White, Lawyer Contributors

March 6, 2012 – It is widely agreed that the U.S. Supreme Court’s current Term is a blockbuster, as the Court considers some of its most important cases in years. Although blockbuster terms occur every few years, this is the first for the Roberts Court, which has placed a new emphasis on addressing issues relevant to business. Unsurprisingly, many of the cases attracting the most attention this year raise such issues. Below, we provide a guide to some of the cases expected to be of most interest to the Texas business community.

Health Care
It is no surprise that the trio of cases involving challenges to the Affordable Care Act (frequently called “Obamacare” by critics) is at the top of this list. Health care is a multi-trillion dollar industry. In addition to the direct costs, health care spending represents a hefty indirect cost through tax dollars spent on government programs and subsidies. Whether the Court upholds the law or strikes it down, it will have major implications for how businesses operate.

The Court has taken the extraordinary step of devoting six hours of argument over three days to the Affordable Care Act—the most argument time the Court has given to a single group of cases in at least a generation. The first case, Department of Health and Human Services v. Florida, is a constitutional challenge to the Act’s centerpiece—its minimum coverage provision, or individual mandate, which requires individuals to buy health insurance or pay a penalty. Both supporters and critics agree that the individual mandate is a key provision of the Act: without it, people could wait until they are sick to buy health insurance. The Eleventh Circuit struck down that provision, saying it exceeded Congress’s powers under the Commerce Clause, the Necessary and Proper Clause, and the Spending Clause. This issue has been the primary focus of attention, and the Court has given the argument two full hours, twice that given an ordinary case. The Court has set aside an additional 90 minutes to address whether the Anti-Injunction Act’s restriction on contesting taxes until they are collected means that individuals cannot challenge the individual mandate’s penalty provision until they are actually forced to pay it, in 2014 or later.

The other cases, National Federation of Independent Business v. Sebelius, and Florida v. Department of Health and Human Services, raise two related questions. First, whether the individual mandate is severable, so that if the Court holds that provision unconstitutional, it will not invalidate the entire Act. (The Eleventh Circuit held that the provision is severable.) And, second, whether a threat to withhold federal Medicare and Medicaid funds if states do not comply with the Act is unconstitutionally coercive. (The Eleventh Circuit held that it is not.)

The constitutional arguments about the scope of Congress’s regulatory authority and principles of federalism have implications far beyond the Act itself. Even if the Act eventually is repealed (as all remaining Republican candidates have pledged to do), a Court opinion upholding the Act would set a precedent for greater federal intervention in areas traditionally left to state regulation or individual choice.

HHS v. Florida will be argued on March 26 and 27, 2012; the other two cases will be argued on March 28.

Environmental Law
For years, the Environmental Protection Agency has asserted the authority to issue administrative compliance orders requiring property owners to remedy alleged violations of environmental statutes; because EPA ordinarily brings a lawsuit to enforce such orders if property owners do not comply, it has successfully argued that such orders are not final when issued and thus not subject to Administrative Procedure Act review. Thus property owners have little practical ability to challenge such orders until EPA seeks to enforce them. But Sackett v. EPA, argued in January, might well change that. Based on the Justices’ statements at argument, many expect the Court will hold that a property owner can obtain immediate judicial review of an administrative compliance order issued under the Clean Water Act.

The Sacketts used dirt and rock as fill to prepare their small property in Idaho to build a house. Soon afterward, EPA issued an order declaring the property a wetland under the Clean Water Act and ordering the Sacketts to return it to undeveloped condition, threatening civil penalties of up to $32,500 per day for noncompliance. The Sacketts sought judicial review, but the Ninth Circuit held that the Clean Water Act preempts APA review of compliance orders until EPA seeks to enforce them, and concluded that that scheme was consistent with due process.

During argument at the Supreme Court, a majority of the Justices seemed sympathetic to the Sacketts, as questioning made clear that in the absence of pre-enforcement judicial review, the Sacketts faced three bad options: (1) complying with the order at a cost of tens of thousands of dollars; (2) seeking a permit, which would likely take years, cost tens of thousands of dollars, and be unlikely to issue before the property owner complied with the order; or (3) doing nothing and waiting for the government to bring an enforcement action while potentially crippling fines accrue. Some of the more conservative Justices called EPA’s actions “high handed” and suggested most Americans would believe such administrative overreach “can’t happen in the United States.” Even one of the Court’s more liberal Justices, Justice Breyer, noted the government was fighting decades of precedents establishing a strong presumption in favor of judicial review of agency action.

The Sacketts have a reasonable prospect of prevailing. The next question is whether the Court will decide the case on narrow grounds or instead issue a far-reaching opinion strongly favoring landowners. A decision is expected by mid-spring.

Foreign Tort Liability
In 2010, the Supreme Court in Citizens United affirmed that corporations are entitled to First Amendment protection and struck down corporate campaign spending limits, holding that Congress could not make categorical distinctions in permitted speech based on the corporate form. Two cases this Term involve the implications of the corporate form for liability under a pair of provisions that allow aliens to sue in U.S. courts for torts committed abroad, the Alien Tort Statute and the Torture Victims Protection Act of 1991. Although the Alien Tort Statute has been on the books since 1789, it has experienced a resurgence in recent decades as activists have brought suits for alleged human rights abuses abroad. Since 1997, some courts have permitted such suits to be brought against corporations.

In Kiobel v. Royal Dutch Petroleum, Nigerian plaintiffs brought suit alleging Royal Dutch Petroleum participated alongside the Nigerian government perpetrating genocide and torture in retaliation for protesting against oil exploration. In Kiobel, the Second Circuit became the first circuit to hold that corporations cannot be held liable under the Alien Tort Statute, holding that the international law the statute incorporates does not call for the punishment of artificial persons.

Mohamad v. Rajoub, raises a similar issue under the Torture Victim Protection Act. Plaintiffs filed suit against the Palestinian Authority for the alleged torture and extrajudicial killing of a family member. The D.C. Circuit affirmed dismissal of the case, holding that statutory language permitting suit against “any individual who, under actual or apparent authority” of a foreign nation tortures another person does not apply to organizations.

Even multinational companies that have taken safeguards to avoid any involvement in human rights abuses abroad will have an interest in Kiobel and Mohamad, particularly if they perform work in unstable countries, because a holding that those statutes do not apply to corporations could allow corporations to seek dismissal before discovery at the motion-to-dismiss phase. Some activists argue these cases are the next Citizens United, saying that a ruling favoring corporations will make them unaccountable. Both cases were argued on February 28, 2012.

UPDATE: Soon after this article went to print, the Court issued an order setting Kiobel for reargument next Term—just as it had in Citizens United in 2009. Monday’s order directed counsel to address the additional question of the extraterritorial application of the Alien Tort Statute—that is, whether and the extent to which that statute allows U.S. courts to recognize a cause of action for violations of international law that occur within the territory of other sovereign nations. It has long been assumed that the Alien Tort Statute has extraterritorial application; therefore, any decision holding that it does not would indeed be a blockbuster. The Court’s recent opinions have reiterated the presumption that laws presumptively do not have extraterritorial application. In any event, if February’s oral argument is instructive, there is a decent chance the Court will hold that corporations cannot be sued under either statute.

Honorable Mentions
Given the number of important civil cases now before the Court, it is hard to limit this article to just three cases. Another case that warrants a brief mention is Arizona v. United States, the challenge to Arizona’s tough new anti-illegal immigration law, which imposes state-law penalties for violating federal immigration requirements. The Court is reviewing the Ninth Circuit’s decision that federal law preempts the Arizona statute, which makes it a crime to fail to obtain and carry immigration papers while in Arizona, and seeks to tackle the “supply” side of illegal-alien employment by making it a misdemeanor for “a person who is unlawfully present in the United States” to seek or do work. If the Arizona law is upheld, we can expect other states to pass similar laws, which may affect workforce migration patterns and even the availability of lawful alien employees, given the law’s potential chilling effects. The case will be argued on April 25, 2012; Justice Kagan recused herself.

Finally, although not (yet) before the Court, we would be remiss not to mention Coalition for Responsible Regulation v. EPA, and the host of petitions consolidated and coordinated with it now pending before the D.C. Circuit. There, industry and states challenge EPA’s finding that greenhouse gases, including carbon dioxide, endanger public health and are therefore subject to Clean Air Act regulation as pollutants, as well as EPA’s new regulatory scheme for greenhouse gases. In an unusual move, the D.C. Circuit has ordered two days of argument. The panel consists of Chief Judge Sentelle, Judge Tatel—both veterans of the D.C. Circuit decision in Massachusetts v. EPA—and Judge Rogers. In 2007, the Supreme Court agreed with Judge Tatel’s dissent that EPA failed to provide a lawful explanation for declining to regulate greenhouse gases; Judge Rogers joined Judge Tatel’s dissent when the case was considered for rehearing en banc. This potential blockbuster was argued on February 28-29, 2012.

 

John Elwood is a partner, and Eric White an associate, in the appellate practice group at Vinson & Elkins, LLP’s Washington, D.C. office. The authors filed an amicus brief on behalf of the American Legislative Exchange Council in HHS v. Florida, urging the unconstitutionality of the Act’s minimum coverage provision; Mr. Elwood represents the lead petitioner in Coalition for Responsible Regulation v. EPA.

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